“China’s High Technology Challenge to the United States”

Testimony before Committee of Oversight and Government Reform

United States House of Representatives

September 26, 2018

Dean Cheng Senior Research Fellow The Heritage Foundation

My name is Dean Cheng. I am a Senior Research

Fellow at The Heritage Foundation. The views I

express in this testimony are my own and should not be

construed as representing any official position of The

Heritage Foundation.

Over the past three decades, the American view of the

People’s Republic of China (PRC) as a potential

competitor in various areas of high technology has

steadily evolved. In the 1980s, a decade after Deng

Xiaoping began his policy of “Reform and Opening,”

China was still seen as primarily a source of cheap

goods of limited sophistication. China’s economic

growth, however, saw not only an expanding array of

goods, but a steady increase in their sophistication.

Today, China is seen as a near-peer competitor in

terms of its scientific and technological prowess.

Chinese supercomputers are among the world’s

fastest, while China is now their leading

1Ben Guarino, Emily Rauhala, and William Wan,

“China Increasingly Challenges American Dominance

of Science,” Washington Post, June 3, 2018,

https://www.washingtonpost.com/national/health-

science/china-challenges-american-dominance-of-

science/2018/06/03/c1e0cfe4-48d5-11e8-827e-

190efaf1f1ee_story.html?noredirect=on&utm_term=.79

778c5f5aae (accessed September 18, 2018).

manufacturer. The world’s largest radio telescope is

located in China. A Chinese lunar probe will make an

unprecedented landing on the far side of the Moon.

American policymakers have worried about the

effects of a Chinese lead in quantum computing and

artificial intelligence development.1

At the same time, the Chinese Communist Party

(CCP), the ruling element within the PRC, sees itself

as both competing with the United States and in a

period of “strategic opportunity.”2 The implication is

that the current competition is most likely to remain

peaceful, focused on the non-military aspects of

“comprehensive national power,” and affording the

PRC a historic opportunity to catch up with the more

developed countries of the West, including the United

States, Europe, and Japan.

“Comprehensive National Power” in the “Period

of Strategic Opportunity”

2 Chen Erhou, Liu Zhen, et. al., “Seize the Strategic

Opportunity and Concentrate Progressive Energy,”

Xinhua, March 4, 2018,

http://www.xinhuanet.com/politics/2018lh/2018-

03/04/c_1122483315.htm (accessed September 23,

2018), and Li Junru, “Fully Recognize Our Nation’s

Vital Strategic Opportunity Period for National

Development,” Study Times, February 21, 2011,

http://theory.people.com.cn/GB/13967607.html (accessed September 23, 2018)

2

Central to understanding how the PRC views science

and technology (S&T) is the idea of “comprehensive

national power” (zonghe guojia liliang; 综合国家力

量). According to the China Institute of Contemporary

International Relations (CICIR), a Chinese think-tank

associated with the Ministry of State Security,

comprehensive national power (CNP) is the "total of

the powers or strengths of a country in economics,

military affairs, science and technology, education,

resources, and influence."3

One of the central lessons from the collapse of the

Soviet Union was Moscow’s over-emphasis on the

military, while neglecting other elements of national

power. For China, given that it is starting from an even

lower level of national development, the focus has

been on improving all the elements of CNP.

This, in turn, means advancing the various strands of

national power that define a nation and, as important,

how it compares with other states. CNP includes both

hard and soft power. It involves not only military

capability and economic strength, but also diplomatic

respect, political cohesion, and levels of scientific and

technical attainment.

In this context of lifting China’s CNP, science and

technology plays an increasingly pivotal role since it

affects multiple strands of power, including the

economy and the military. Lack of scientific and

technological progress condemns a nation to second-

class status, forever reacting to developments

elsewhere. Advances, on the other hand, allow a

nation to set the terms of economic and military

engagement.

The role of science and technology has accelerated in

the past several decades. According to Chinese

assessments, the world has shifted from the Industrial

Age to the Information Age. National economic

3 China Institute of Contemporary International Relations, Global Strategic Pattern—International Environment of China in the New Century (Beijing: Shishi Press, 2000), cited in Hu Angang and Men Honghua, "The Rising of Modern China Comprehensive National Power and Grand Strategy."

4State Council Information Office, China’s Military

Strategy (Beijing, PRC: State Council Information

Office, 2015), https://jamestown.org/wp-

content/uploads/2016/07/China%E2%80%99s-

Military-Strategy-2015.pdf (accessed September 18,

power is no longer a function of just industrial output

(e.g., tons of bauxite smelted or steel produced).

Instead, it is increasingly affected by the ability to

gather, transmit, and generate accurate information

rapidly. The developments in the area of information

and communications technology (ICT) has led to a

revolution in the measure of national power, which in

turn has widespread political, social, and military

ramifications.

ICT, however, is itself the product of a number of

disciplines, including software engineering,

microchip design, batteries and energy storage, and

also is related to aerospace technologies (e.g.,

communications satellites), electromagnetic spectrum

management, and even maritime technology (in the

laying of undersea cables). If the PRC is to compete

in the Information Age, then it must develop

capabilities in many if not all of these sub-disciplines

and associated fields.

The interest in improving China’s level of science and

technology has redoubled during this “period of

strategic opportunity.” The Chinese assess the first

decades of this century as a period of relative

quiescence, with few direct threats to Chinese

security. Consequently, now is the opportunity for

China to improve its economic and technological

competitiveness, elevate its international standing,

and make the leap to a mid-level power (in the

Chinese conception).4 As Xi Jinping declared at the

19th Party Congress in 2017, China will use the

current period to improve its standing. By the middle

of the 21st century, according to Xi, China will have

become “a global leader in terms of comprehensive

national power and international influence.”5

In the Chinese view, demonstrating prowess in

various fields of scientific endeavor enhances China’s

reputation in terms of both soft and hard power. With

the former, it makes China a more desirable partner in

2018), and Ian Rinehart, “The Chinese Military:

Overview and Issues for Congress,” Congressional

Research Service, 2016, p. 9,

https://fas.org/sgp/crs/row/R44196.pdf (accessed

September 18, 2018).

5Bonnie Glaser and Matthew Funaiole, “Xi Jinping’s

19th Party Congress Speech Heralds Greater

Assertiveness in Chinese Foreign Policy,” The Lowy

Interpreter, October 26, 2017,

https://www.lowyinstitute.org/the-interpreter/19th-

party-congress-more-assertive-chinese-foreign-policy

(accessed September 18, 2018).

3

both economic and scientific projects. At the same

time, an advanced scientific and technological base

can have a deterrent effect on potential adversaries,

since it implies that China can field sophisticated

military systems.

To this end, improving China’s scientific and

technological capabilities is a clear priority.

A Long-standing Interest in S&T

It is not a new priority, however. When Deng

Xiaoping came to power in 1978, the PRC was an

economic disaster. The policies of Mao Zedong from

1949 to 1978, emphasizing central planning, forced

draft industrialization and economic isolation. Deng’s

policies, which reformed all of these aspects, laid the

foundation for the subsequent forty years of growth.

China’s annual gross domestic product (GDP) growth

from 1979 to 2016 has averaged 9.6 percent. “This has

meant that on average China has been able to more

than double the size of its economy in real terms every

eight years.”6

One of the key reasons for this growth was Deng’s

reassessment of the “tenor of the times.” Under Mao

Zedong, the Chinese leadership operated under the

belief that a major war between the capitalist and

socialist camps was likely. Moreover, after the Sino-

Soviet split of 1960, there was also the likelihood of a

Chinese war with the Soviet Union.

Consequently, the PRC had to prepare for “major war,

early war, nuclear war.” Chinese economic efforts

were focused on supporting a protracted conflict that

would likely include nuclear strikes on Chinese soil,

and a potential invasion by the Soviet Union. Not only

was major investment focused on supporting military

industries, but many factories were inefficiently

distributed across China, to help sustain an extended

resistance by guerrilla forces.

Deng, however, concluded that the current era was not

marked by the likelihood of war, but was one of

“Peace and Development.” Far from facing the

prospect of imminent war, according to Deng, there

was only a limited likelihood of great power conflict.

6Wayne M. Morrison, “China’s Economic Rise:

History, Trends, Challenges, and Implications for the

United States,” RL 33534, Congressional Research

Service, February 2018, p. 5,

https://fas.org/sgp/crs/row/RL33534.pdf (accessed

September 18, 2018).

China could therefore safely adjust its priorities, and

focus on improving its economy. Deng therefore

slashed the size of the People’s Liberation Army

(PLA), and also redirected resources towards building

commercial industries. Military industries were given

the stark choice of going out of business or shifting

their products to commercial goods for the civilian

market. Deng’s efforts are described by the Chinese

as “Reform and Opening” (gaige yu kaifang; 改革与

开放).

Even in the early days of Chinese reform, however,

there was a recognition that Chinese long-term

competitiveness required investments in high

technology. Chinese scientists approached Deng

Xiaoping in 1986, proposing a national effort to foster

certain high-technology sectors. Deng personally

approved the National High-Tech R&D Program,

“Plan 863,” which fosters Chinese high-technology

development in key technical fields deemed to be of

particular strategic value. These include:

Information technology,

Bio-technology and advanced agricultural

technology,

Advanced materials technology,

Advanced manufacturing and automation

technology,

Energy technology, and

Resource and environment technology.7

Aerospace technology was also an early focus for Plan

863. In the mid-1990s, the Chinese added marine

technology to the list. Research areas included in Plan

863 enjoy additional funding and priority access to top

research facilities.

Other Chinese technology development efforts

include Plan 973, the National Basic Research

Program, which supports research in “cutting edge”

technology areas; the Key Technologies R&D

Program, which apparently supports applied

technology areas that aid manufacturing; the Spark

Program, focused on technology benefiting rural

7PRC Ministry of Science and Technology, “National

High-Tech R&D Program (863 Program),”

http://www.most.gov.cn/eng/programmes1/ (accessed

September 18, 2018).

4

areas; and the Torch Program, which supports

commercialization of high technology.8

In February 2016, the Chinese press reported that

several major technology programs, including Plan

863 and 973, had been merged into a single new

program, in order to improve efficiency. These reports

indicate that the new program, operating under the

PRC Ministry of Science and Technology, would

support an initial group of 59 projects, and would

“focus on key fields such as

Biotechnology

Space

Information

Automation

Energy

New Materials

Telecommunications

Marine Technology.”9

Within all of these areas, the expectation is that

Chinese scientists will be leaders, not simply

followers. That is, the Chinese are pushing for

“indigenous innovation” (zizhu chuangxin; 自主 创),

and not simply copying (or stealing) foreign

technology.

Indeed, alongside the various funding programs

intended to foster certain specific research areas has

been a broader effort to push Chinese innovation, i.e.,

the application of S&T. In 2006, the PRC

promulgated the “National Medium and Long-Term

Program for Scientific and Technological

Development,” providing guidelines for areas of

emphasis and funding through 2020. This plan

8Joel R. Campbell, “Becoming a Techno-Industrial

Power: Chinese Science and Technology Policy,”

Brookings Institution Issues in Technology Innovation

No. 23, April 2013, https://www.brookings.edu/wp-

content/uploads/2016/06/29-science-technology-policy-

china-campbell.pdf (accessed September 18, 2018).

9Chinese Academy of Sciences, “China Inaugurates

National R&D Plan,” Xinhua, February 17, 2016,

http://english.cas.cn/newsroom/china_research/201602/

t20160217_159669.shtml (accessed September 18,

2018).

10National Research Council of the National

Academies, The New Global Ecosystem in Advanced

Computing (Washington, DC: National Academies

Press, 2012), p. 99,

marked the formal incorporation of “indigenous

innovation” into Chinese strategic economic

planning. It identified some 39 key areas, frontier

technologies, and scientific and engineering

megaprojects.10

The purpose of this program is to promote innovation

within China, by Chinese scientists and research

establishments, for the benefit of China. Elements

include:

A substantial increase in research and

development (R&D) funding, to reach 2.5

percent of GDP by 2020;

Tax policies to promote investment in

research by Chinese businesses; and

A reduction in the reliance on foreign

technologies.11

In association with the Medium and Long-Term

Program, especially the effort to reduce reliance on

foreign technologies, Chinese policymakers

subsequently also created a system for accrediting

products based on the level of national indigenous

innovation. This system, announced in 2009, would

initially be applied in six product areas, including

computers and software, telecommunications

products, and energy equipment. The assessed level of

indigenous innovation would then be used to “guide”

national, provincial, and local government

procurement.12

Not surprisingly, this effort to limit foreign access to

Chinese markets led to a major international outcry.

Even though the PRC eventually stepped back from

this effort, however, the extent to which Chinese

policymakers would go to promote indigenous

https://www.nap.edu/read/13472/chapter/16 (accessed

September 18, 2018).

11Josef Bichler and Christian Schmidkonz, “The

Chinese Indigenous Innovation System and Its Impact

on Foreign Enterprises,” Munich Business School

Working Paper 2012-1 (Munich, Germany; Munich

Business School, 2012), p. 3, https://www.munich-

business-

school.de/fileadmin/mbs_daten/dateien/working_papers

/mbs-wp-2012-01.pdf (accessed September 18, 2018).

12Jingxia Shi, “China’s Indigenous Innovation and

Government Procurement,” Bridges, Vol. 14, No. 3

(September 16, 2010), https://www.ictsd.org/bridges-

news/bridges/news/china%E2%80%99s-indigenous-

innovation-and-government-procurement (accessed

September 18, 2018).

5

innovation was made clear. As important, it

demonstrates how China can promote its own

industries and encourage its S&T through the

establishment and manipulation of technical and

industrial standards. This approach is arguably more

difficult to counter than outright theft of intellectual

property, since it ostensibly employs market tools and

legal measures.

Additional Means of Accessing Advanced

Technology

The employment of accreditation also highlights the

evolving set of tools available to Chinese decision

makers in developing and acquiring advanced

technologies. Not only does the Chinese government

control access to a potentially enormous market, but

the economic growth of the past four decades has

given Beijing financial resources that allow it to

purchase technologies and companies outright.

Foreign companies that seek access to the Chinese

market, especially those in key high-technology

industries or sectors, are often only able to do so if

they establish a local footprint. This may be in the

form of an equity joint venture or a contractual joint

venture. The former entails the creation of legal

entities that have partial foreign ownership and partial

Chinese ownership. The latter is the creation of a

specific, contractually based entity, rather than a new

organization.13 While recent Chinese legal reforms

have loosened which types of joint ventures are

necessary for particular industries, and in some cases

expanded the permissibility of wholly foreign

investment, high-technology areas typically remain

constrained.

13Paul Edelberg, “Is China Really Opening Its Doors to

Foreign Investment?” China Business Review,

November 8, 2017,

https://www.chinabusinessreview.com/is-china-really-

opening-its-doors-to-foreign-investment/ (accessed

September 18. 2018).

14Matthew Nitkoski, “The Heat Is on for the Chinese

Pharmaceutical Industry,” CKGSB Knowledge,

November 14, 2016,

http://www.knowledge.ckgsb.edu.cn/2016/11/14/.../heat-chinese-pharmaceutical-industry/ (accessed

September 18, 2018).

15“Factbox: Chinese Investments in German

Companies,” Reuters, February 26, 2018,

As important, the Chinese system often encourages

foreign companies to establish R&D facilities in the

PRC, whether as part of a joint venture or not. As one

observer of pharmaceuticals noted, “In principle,

companies with local operations are eligible for fast-

track approval of new products.” As a result, a number

of foreign pharmaceutical companies have established

research campuses in China.14

China has also increasingly tried to purchase foreign

high-technology companies. Chinese efforts in the

United States have at times been stymied by the

Committee on Foreign Investment in the United

States (CFIUS), which can block foreign acquisitions

of American companies if it is seen as posing a

potential national security challenge. As a result,

China has increasingly targeted European companies.

Chinese investments in Germany, for example, have

risen substantially since 2015. China has acquired

German plastics, biotechnology, and engineering

firms.15 The Chinese purchase of the German robot

manufacturer Kuka for 4.4 billion euros

(approximately $5.1 billion) in 2016 set off alarms,

and has led to discussion of the establishment of a

German equivalent of CFIUS to review foreign

acquisitions of German companies.16

Earlier in 2018, Chinese investors acquired the French

chip manufacturer Linxens. The company’s products

are mainly used in security and identity applications.

“The group’s products are used in areas ranging from

smartphones, transport cards, identity cards and

passports to contact and contactless transactions and

biometrics.”17

Ongoing Chinese Concerns

https://www.reuters.com/article/us-daimler-geely-

factbox/factbox-chinese-investments-in-german-

companies-idUSKCN1GA1RO (accessed September

18, 2018).

16Benjamin Bathke, “China’s Unsatisfied Hunger for

German Companies,” Deutsche Welle, July 12, 2017,

https://www.dw.com/en/chinas-unsatisfied-hunger-for-

german-companies/a-39658363 (accessed September

18, 2018).

17Don Weinland, Harriet Agnew, and Javier Espinoza,

“China’s Unigroup Buys French Chipmaker Linxens

for $2.6 Billion,” Financial Times, July 25, 2018,

https://www.ft.com/content/f919b032-8fe5-11e8-b639-

7680cedcc421 (accessed September 18, 2018).

6

Despite these efforts, however, Chinese leaders

remain concerned about the state of China’s high-

technology capabilities. In key technology areas,

China remains heavily dependent on foreign sources.

A World Bank study in 2012 concluded that China

had a $10 billion intellectual property deficit; that is,

China imported some $10 billion more than it

exported. 18 Despite Chinese investments in high

technology in the intervening six years, it is not clear

how much the situation has changed.

In 2018, for example, the United States announced

that it would impose a seven-year ban on sales of

microprocessors and other components to Chinese

telecommunications company ZTE. It soon emerged

that such a ban would effectively kill China’s second

largest telecommunications company. Nor is ZTE

unique; many other major Chinese companies,

including key state-owned enterprises such as Petro

China, depend on Western high technologies for their

operations.19

China’s “Made in 2025” program, where the Chinese

hope to be able to become largely autonomous in key

manufacturing areas by 2025, should therefore be

seen as part of the larger effort to promote Chinese

science and technology, not only in terms of

innovation and R&D, but sustaining China’s industry

by localizing the entire technology development,

commercialization, and production process.

* * * * * * * * * * * * * * * * * * *

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of trustees.

18UNESCO, “China: Taking Stock of Progress Toward

Becoming an Innovation-Driven Nation,” Science,

Technology and Innovation Policy, December 2, 2016,

http://www.unesco.org/new/en/natural-

sciences/science-technology/single-view-sc-

policy/news/china_taking_stock_of_progress_towards_

becoming_an_innovati/ (accessed September 18, 2018).

19Jean Baptiste Su, “Analysis: ZTE’s Collapse Reveals

China’s Huge Dependence on U.S. Technologies,”

Forbes, April 22, 2018,

https://www.forbes.com/sites/jeanbaptiste/2018/04/22/a

nalysis-ztes-collapse-reveals-chinas-huge-dependence-

on-u-s-technologies/#6237918b7326 (accessed

September 18, 2018).

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Dean Cheng, Senior Research Fellow

Dean Cheng is currently the Senior Research Fellow for Chinese Political and Military

Affairs at the Heritage Foundation. He is fluent in Chinese, and uses Chinese language

materials regularly in his work.

Prior to joining the Heritage Foundation, he was a senior analyst with the China Studies

Division (previously, Project Asia) at CNA from 2001-2009. He specialized on Chinese

military issues, with a focus on Chinese military doctrine and Chinese space capabilities.

Prior to joining CNA, he was a senior analyst with Science Applications International

Corporation (SAIC), and an analyst with the US Congress’ Office of Technology

Assessment in the International Security and Space Division.

He is the author of the volume Cyber Dragon: Inside China’s Information Warfare and

Cyber Operations (Praeger Publishing, 2016).

In addition, he has written a number of papers and book chapters examining various

aspects of Chinese security affairs, including Chinese military doctrine, the military and

technological implications of the Chinese space program, and Chinese concepts of

“political warfare.” Recent publications include:

“Space Deterrence, the US-Japan Alliance, and Asian Security: A US Perspective,” in

The US-Japan Alliance and Deterring Gray Zone Coercion in the Maritime, Cyber,

and Space Domains, with Scott Harold, Yoshiaki Nakagawa, Junichi Fukuda (Santa

Monica, CA: RAND Corporation, 2017)

“Space and the Evolving Chinese Military,” in Crisis Stability in Space, with Bruce

MacDonald, Admiral Dennis Blair, Karl Mueller, and Victoria Samson (Washington,

DC: Foreign Policy Institute, 2016).

“The PLA’s Wartime Structure,” in The PLA as Organization v. 2.0, ed. by Kevin

Pollpeter and Kenneth Allen (Merrifield, VA: DGI, 2015). www.pla-org.com

“Converting the Potential to the Actual: Chinese Mobilization Policies and Planning,” in

The People’s Liberation Army and Contingency Planning in China, ed. by Andrew

Scobell, Arthur S. Ding, Philip C. Saunders, and Scott W. Harold (Washington, DC:

NDU Press, 2015).

“Chinese Concepts of Space Security” in Springer Handbook of Space

Security, ed. by K.U. Schrogl (NY: Springer Publishing, 2015).

“Information Dominance: PLA Views of Information Warfare and

Cyberwarfare,” in Chinese Cybersecurity and Cyberdefense, ed. by Daniel

Ventre (Hoboken, NJ: Wiley Publishers, 2014).

“Chinese Lessons from the Gulf Wars,” in Chinese Lessons from Other People’s

Wars, ed. by Andrew Scobell, David Lai, and Roy Kamphausen (Carlisle, PA:

Strategic Studies Institute, 2011).

“Chinese Views on Deterrence,” Joint Force Quarterly (#60, January 2011)

He has testified before Congress, and spoken at the National Space Symposium, the US

National Defense University, the STRATCOM Deterrence Symposium, Harvard, and

MIT. He has appeared frequently in print and broadcast media to discuss Chinese space

and military activities.